Iran’s economic stake in Syria

Many analyses have been made about Iran’s strategic and geopolitical role in the Syrian regime, but not enough attention has been paid to the crucial and changing economic relations between the two countries. By analyzing Iran-Syria relations through this prism, one can shed light on the more nuanced, unconventional, and complicated aspects of Iran’s role in Syria. Iran has ...

Many analyses have been made about Iran’s strategic and geopolitical role in the Syrian regime, but not enough attention has been paid to the crucial and changing economic relations between the two countries. By analyzing Iran-Syria relations through this prism, one can shed light on the more nuanced, unconventional, and complicated aspects of Iran’s role in Syria.

Iran has historically invested a considerable amount of money, resources, skilled forces, and labor in Syria. These investments were ratcheted up, particularly, in the last few years before uprisings began erupting in March 2011 across Syria. Although large sums of money and resources were allocated to investments in Syrian transportation and infrastructure, Iranian and Syrian economic ties are not limited to these spheres. A few months before the popular uprisings were ignited, Iranian authorities signed a $10 billion natural gas agreement with Syria and Iraq for the construction of gas pipeline that would start in Iran, run through Syria, Lebanon, and the Mediterranean, and reach several Western countries. According to the agreement, Iraq and Syria would receive a specified amount of cubic meters of natural gas per day. This proposal was endorsed by Iranian Supreme Leader Ali Khamenei, who also supported the allocation of $5.8 billion in aid to Syria by Iran’s Center for Strategic Research (CSR), which concentrates on the Islamic Republic of Iran’s strategies in six different arenas including Foreign Policy Research, Middle East and Persian Gulf research, and International political economy research.

Another unique and significant agreement that was signed before the crisis broke out in Syria was a proposal to establish a joint bank in Damascus, 60 percent of which the Iranian government would own. The agreement would have allowed Iran to identify other financial hubs with which to conduct its transactions in Syria. At the time, Syrian banks were allowed to engage in trade and transactions with the West, prior to sanctions imposed after the start of the conflict. Iranian First Vice President Mohammad Reza Rahimi and Syrian President Bashar al-Assad discussed an even more comprehensive agreement shortly before the uprisings seeking to establish a regional economic bloc. As a result of this proposal, a 17-article agreement was signed which focused on "trade, investment, planning and statistics, industries, air, naval and rail transportation, communication and information technology, health, agriculture, [and] tourism."

The recent rounds of international sanctions imposed on Syria have led to the suspension of all former agreements that Iran was attempting secure in the region, which has put tremendous pressure on Iran. The Syrian pound (SYR) has lost 25 percent of its spending power falling from 47 SYR to $1 USD to 67 SYR to $1 USD. The Syrian Ministry of Economy has stated that food prices have surged dramatically. The prices of some items have increased by up to 37 percent since the popular uprisings began. Due to increases in military expenditures, public expenditures increased by $19 billion in 2011. Meanwhile, public revenue has decreased by $2.31 billion.

Although Iranian officials have frequently pointed out that their economic alliance would not be shaken by the security issues since the uprisings began, Syrian state companies as and business operators have encountered growing difficulties and obstacles in trading and reaching deals with Iran due to the restrictions on dollar transactions. The Iranian and Syrian economic alliance has operated between multi-level contracts of state and semi-private organizations through the adoption of the dollar for transactions, which were worth billions of dollars. However, regulations imposed by the United States, European Union, and other Arab Gulf states after the start of the conflict have made it difficult to utilize and source foreign currencies through the Syrian Central Bank.

These economic pressures on both countries pushed Iran and Syria to sign a symbolic free trade agreement on December 13, 2011. The move was an attempt to diminish the effects of economic sanctions imposed by the United States, EU, and some members of the Arab League, as well as reduce trade hurdles that have emerged due to the progress of rebels, the kidnapping of some Iranians in Damascus, and continued insecurity. According to the recent agreement, trade will be further liberalized between the state-owned companies and both countries declared that they would decrease custom fees in order to facilitate trading and business. Particularly, Syria has decided to reduce fees on Syrian goods exported to Iran by 60 percent in order to ratchet up the bilateral trade. Minister of Economy and Trade Mohammad Nidal al-Cha’ar pointed out at the Syrian-Iranian committee meeting "The road to Iran has always been paved for the two countries."

These recent financial agreements are crucial for both countries, but particularly Syria, in order to open up a new market for its products and increase revenue. These agreements are believed to increase Iran and Syria’s annual trade volume to $5 billion. Allaedin Boroujerdi stated that the recent agreements were "a firm response" to the United States and its Western allies "investing billions of dollars to change the political structure of the Syrian government." They also are intended to offer the needed moral and economic support for Assad’s isolated regime as well as the Iranian government.

Without doubt, Iran has tremendous geopolitical and strategic interests in Syria, but the country has additionally become a crucial economic lifeline for Iran. As both countries become increasingly isolated from the international community their economic ties have become exceedingly more important. However, billions of dollars in Iranian investments have been suspended with the current crisis in Syria. And until there is a resolution to the nearing two-year conflict, with either Assad regaining control or the establishment of a new government, economic conditions will continue to be threatened.

Majid Rafizadeh, an Iranian-Syrian, is scholar, policy analyst, and human rights activist. He is president of the International American Council on the Middle East and Muslims. He has taught at the University of California, Santa Barbara on a Fulbright teaching scholarship. Formerly, he conducted research at Woodrow Wilson International Center for Scholars and participated at the National Council on US-Arab relations. He can be reached at rafizadeh@fas.harvard.edu or follow him at @majidrafizadeh.